Viceroy Research Group 1 viceroyresearch.org

Athenex – Where there’s smoke… Athenex ’s revenue generating business is a house of cards, muddled

with further ties to large scale frauds, fabricated management

credentials, and photoshopped offices .

October 23, 2019 – This follow up report focuses specifically on Athenex’s Polymed

subsidiary, which accounts for a large portion of Athenex’s revenues and capital

expenditure:

▪ Our investigations have found ties between Polymed and its management

team’s ties to the largest taxol smuggling ring in history Hande Yunnan,

resulting in 50 arrests and 32 imprisonments. Major perpetrators and

shareholders of this scheme now work for Athenex.

▪ Polymed appears to continue sourcing its taxol from Hande Yunnan, despite

the fact that our investigations show Hande Yunnan no longer produce taxol.

▪ Further inspection of Polymed’s management show inconsistencies in prior

executive roles, specifically of William Zuo. Zuo was also the US liaison of

bringing smuggled taxol to the USA.

▪ A deep dive into Chinese regulatory notes from the Ministry of Emergency

Management, coupled with Polymed’s history of objectionable site inspections by Chinese regulators and

the FDA, lead us to believe that Polymed’s manufacturing facility suspension was anything but voluntary.

In any event, Athenex’s manufacturing facility does not manufacture anything.

▪ Viceroy dismantles photoshopped Polymed advertisements for its facilities and expose chemical

manufacturing facilities we believe are non-existent or outsourced.

Viceroy remains short Athenex with high conviction. The quantum of red flags uncovered within the business

and management team surpass any other company we have previously analyzed purely within data sourced

from the public domain.

We reiterate our target price of $2.83, now representing a 75% downside, and will continue to keep investors

informed through further reporting.

We conclude that Athenex exists to abuse capital markets and enrich its management through related party

transactions and licensing deals, rather than bring revolutionary drugs into the market. This activity is

masqueraded through overpromise in both its flagship drug, Oraxol, and its purported “supply-chain”

businesses, such as Polymed.

Athenex is a perfect storm of investor deception, insider enrichment and clinical trial risks.

Investors should demand a full investigation of the issues discussed within this report: we

are confident there is more to this story given how much was available purely through the

public domain.

Athenex’s operational and R&D cash-burn rate is over US$100m a year – the company would be lucky to survive

until HY 2020 without needing a further cash injection from investors. Even if Athenex scrapped its R&D

completely, the company’s revenue streams operate at a substantial loss.

Accordingly, we believe our valuation of $2.83 is optimistic, and will be realized in the short term. We do not

see a future for the company in its current state. Viceroy’s preliminary report on Athenex can be found in the

below link:

https://viceroyresearch.org/2019/10/22/athenex-too-little-too-late/

Athenex, Inc.

Exchange NASDAQ

Ticker ATNX

Shares Outstanding m 77.3

Share Price* US$ 11.50

Market Cap US$m 888.9

Net Cash US$m 78.7

NCI US$m 11.7

EV US$m 798.5

NTA US$m 131.6

Licensing Revenue US$m 87.2

Revenue Multiple X 1.0

Viceroy Valuation US$m 218.8

Viceroy Price Target US$ 2.83

Downside % -75%* As at close of market - Oct 22, 2019

NB: LTM/balance from Jun 30, 2019

Viceroy Research Group 2 viceroyresearch.org

Attention: Whistleblowers

Viceroy encourage any parties with information pertaining to misconduct within Athenex, its affiliates or any other entity to

file a report with the appropriate regulatory body.

We also understand first-hand the retaliation whistleblowers sometimes face for championing these issues. Where possible,

Viceroy is happy act as intermediaries in providing information to regulators and reporting information in the public interest

in order to protect the identities of whistleblowers.

You can contact the Viceroy team via email on viceroy@viceroyresearch.com.

About Viceroy

Viceroy Research are an investigative financial research group. As global markets become increasingly opaque and complex

– and traditional gatekeepers and safeguards often compromised – investors and shareholders are at greater risk than ever

of being misled or uninformed by public companies and their promoters and sponsors. Our mission is to sift fact from fiction

and encourage greater management accountability through transparency in reporting and disclosure by public companies

and overall improve the quality of global capital markets.

Important Disclaimer – Please read before continuing

This report has been prepared for educational purposes only and expresses our opinions. This report and any statements

made in connection with it are the authors’ opinions, which have been based upon publicly available facts, field research,

information, and analysis through our due diligence process, and are not statements of fact. All expressions of opinion are

subject to change without notice, and we do not undertake to update or supplement any reports or any of the information,

analysis and opinion contained in them. We believe that the publication of our opinions about public companies that we

research is in the public interest. We are entitled to our opinions and to the right to express such opinions in a public forum.

You can access any information or evidence cited in this report or that we relied on to write this report from information in

the public domain.

To the best of our ability and belief, all information contained herein is accurate and reliable, and has been obtained from

public sources we believe to be accurate and reliable, and who are not insiders or connected persons of the stock covered

herein or who may otherwise owe any fiduciary duty or duty of confidentiality to the issuer. We have a good-faith belief in

everything we write; however, all such information is presented "as is," without warranty of any kind – whether express or

implied.

In no event will we be liable for any direct or indirect trading losses caused by any information available on this report. Think

critically about our opinions and do your own research and analysis before making any investment decisions. We are not

registered as an investment advisor in any jurisdiction. By downloading, reading or otherwise using this report, you agree to

do your own research and due diligence before making any investment decision with respect to securities discussed herein,

and by doing so, you represent to us that you have sufficient investment sophistication to critically assess the information,

analysis and opinions in this report. You should seek the advice of a security professional regarding your stock transactions.

This document or any information herein should not be interpreted as an offer, a solicitation of an offer, invitation, marketing

of services or products, advertisement, inducement, or representation of any kind, nor as investment advice or a

recommendation to buy or sell any investment products or to make any type of investment, or as an opinion on the merits

or otherwise of any particular investment or investment strategy.

Any examples or interpretations of investments and investment strategies or trade ideas are intended for illustrative and

educational purposes only and are not indicative of the historical or future performance or the chances of success of any

particular investment and/or strategy. As of the publication date of this report, you should assume that the authors have a

direct or indirect interest/position in all stocks (and/or options, swaps, and other derivative securities related to the stock)

and bonds covered herein, and therefore stand to realize monetary gains in the event that the price of either declines.

The authors may continue transacting directly and/or indirectly in the securities of issuers covered on this report for an

indefinite period and may be long, short, or neutral at any time hereafter regardless of their initial recommendation.

Viceroy Research Group 3 viceroyresearch.org

1. Polymed & Yunnan Hande

This one is something of a rabbit hole.

Athenex subsidiary Polymed therapeutics appears to source its Taxol and other raw API from Hande Yunnan

Biotechnology Co.

Hande Yunnan Biotechnology Co. Ltd. Was previously the second largest taxol supplier in the world, until the

company was raided by Chinese authorities for illegally harvesting yew bark (the source of taxol), resulting in 50

arrests and 32 imprisonments, and setting a precedent against illegal harvesting which has resulted in hundreds

of arrests since1.

Polymed founder William Wei Zuo was the director of a US Yunnan Hande subsidiary as far back as 1995 implying

his involvement in the smuggling and illegal sale of Taxol – in fact, Hande’s US distributor and Polymed even

shared the same offices.

Wu Xiaojing, the American investor in Hande Yunnan and sister of its imprisoned Chairman at the time of its

impropriety, continues to run alongside Zuo for Hande’s USA distributor, which now appears to operate as a

subsidiary of Polymed. Her Facebook shows she is indeed an employee of Athenex.

More recent documents show Hande Yunnan continues to supply Athenex’s taxol.

On the ground checks at Yunnan Hande’s one remaining operating subsidiary show no evidence of taxol

processing. This subsidiary, which used to harvest yew illegally, now owns a tent that dries tea leaves.

So where exactly does Hande, and therefore Polymed, get its raw material?

Yunnan Hande: corruption, smuggling, illegal sales

Taxol is the primary ingredient in the manufacture of paclitaxel and is distilled from the bark of the pacific yew.

Removing the bark from the Yew tree causes it to die: 360,000 mature trees per year would be required for

production of taxol as calculated by NCI’s Gordon Crag2. As such the excessive harvesting and smuggling of yew

bark is illegal in many countries, China included.

Yunnan Hande was one of China’s first and largest taxol suppliers and a joint venture 80% owned by Chinese

American Wu Xiaojing until it was charged with:

▪ Illegally obtaining 55,519.12kg of yew bark extract and 10,765.475g of semi-finished product

(chloroform)

▪ Fraudulently obtaining export licenses

▪ Fraudulently mis-labelling goods.

▪ Evading customs checks and inspections

▪ Illegally sold ~100kg of paclitaxel although the eventual buyers were not identified in the media.

Among the 32 arrests, Chairman Wu Jun was sentenced to 18 years imprisonment and a 2m yuan fine, President

Li Song was sentenced to 9 years imprisonment and vice president Qi Wei was sentenced to 7 years prison. The

period for these offences was between September 10, 1999 and November 2001, which will be important when

showing the complicity of Zuo with this scheme.

We believe William Zuo, Athenex’s President of China Operations was implicitly involved with this entity and

that Zuo facilitated and may continue to facilitate this scheme.

1 http://collection.sina.com.cn/jjhm/yjzx/2018-07-11/doc-ihfefkqq0086571.shtml 2 https://www.foxnews.com/health/pacific-yew-a-potent-cancer-fighting-agent

Viceroy Research Group 4 viceroyresearch.org

Polymed’s connection to Hande Yunnan

The 2015 acquisition of Polymed Therapeutics secured Athenex supply of Taxol which it uses in its API

operations. The importance of Taxol is highlighted in sell side reports and the raw materials disclosure in

Athenex’s own 10K. Polymed represented about US$20m of the company’s ~US$90m current revenues in 2018.

Figure 1 Athenex 10K - 2018

Polymed itself does not appear to own any taxol production facilities but instead procure them from a third

party: Yunnan Hande.

William Zuo: A “Hande” guy to know

On July 31, 1995 William Zuo registered Hande Develop Co. USA Inc in Texas which owned and operated

www.handetech.com (now defunct).

Figure 2 Texas Taxable Entity Search – Taxpayer number 17604765481

Hande’s third party distributor in the US was Hande Tech Development Corp USA and shared the same address

as Polymed until Polymed acquired the company in 2004, all the while Zuo was listed as the agent for each

company.

Viceroy Research Group 5 viceroyresearch.org

The first archived copy of the www.handetech.com site dates to 1997, and touts Yunnan Hande as the key

paclitaxel producer in China. There is also a profile for Hande Tech Development Co. USA, Inc, the owner and

operator of the website.

Figures 3 & 4 handetech.com archive dated December 21, 19973

However the May 18, 2004 archive4 of www.handetech.com redirects to www.polymedt.com. The last link

without a redirect is dated April 5, 20045. Comparing with the timeline of the events at Hande Yunnan we can

see that this covers the period of Hande Yunnan’s illicit activities.

There is more evidence of complicity between Polymed: Hande Yunnan’s imprisoned Chairman’s sister, Wu

XiaoJing, who was a major enough investor in Yunnan Hande to bear a mention in the media.

Figure 5 The truth of the destruction of 100 kilograms of paclitaxel and dead yew6

3 https://web.archive.org/web/19971221192708/http://handetech.com:80/ 4 https://web.archive.org/web/20040518165140/http://handetech.com:80/ 5 https://web.archive.org/web/20040405194510/http://handetech.com:80/ 6 http://www.people.com.cn/GB/huanbao/57/20021206/882815.html

Viceroy Research Group 6 viceroyresearch.org

Ms. Wu Li has actually represents herself under several names but helpfully used her full name in her Facebook

profile.

Figure 6 Xiaojing Wu Li Facebook Profile7

Figure 7 Inovachem 10-K 2009

We also have to applaud Ms. Wu Li for concealing her involvement with Hande Tech by misspelling it in her bio

for Inovachem, a company that existed solely to purchase goods and services from Polymed founded by William

Zuo. More information on Inovachem can be found in our previous report.

Phantom pain

We understand Hande Yunnan Biotechnology Co. Ltd (云南汉德生物技术有限公司) has remained Polymed’s

supplier and business partner. Patent application CN102336726A filed September 30, 2011 by Polymed

subsidiary Chongqing Taihao Pharmaceutical shows the company purchased taxol from Yunnan Hande.

Figures 8 & 9 Paragraph 70 from Patent CN102336726A and translation

7 https://www.facebook.com/xiaojing.w.li

Viceroy Research Group 7 viceroyresearch.org

Of Hande’s 5 subsidiaries, 4 have been deregistered with one former taxol collection company still operating as

a tea company, and has changed its name accordingly. The company’s profile on TianYanCha.com shows part of

its mandate was the growing of yew trees8.

Figure 10

Viceroy’s investigators found more complications on the ground in China. The following observations were made

in Q1-Q2 2019. Investigators visited Hande’s remaining operation Jinghang Yikan Tea Co., Ltd (景洪市怡康茶业

有限公司)

Yikan Tea turned out, predictably, to be drying tea.

Figures 11 & 12 Photos at Yikang tea industries

The investigator questioned locals who confirmed that there were no yew trees at the facility although villagers

remember yew production many years ago.

Investigators also visited Polymed’s Chongqing API factory. Note that this visit was prior to the voluntary

temporary suspension of operations announced in Athenex’s 2019 Q2 10-Q (more on this later).

8 https://translate.googleusercontent.com/translate_c?depth=1&hl=en&prev=search&rurl=translate.google.com&sl=zh-CN&sp=nmt4&u=https://www.tianyancha.com/company/310211756&xid=25657,15700019,15700186,15700190,15700256,15700259,15700262,15700265,15700271&usg=ALkJrhjJnxcSrjTGS_y1MwZ55auJ3MuiKA

Viceroy Research Group 8 viceroyresearch.org

According to observations, only finished/semi-finished products entered the facility.

These facts once again raise the question: where does Hande – and therefore Polymed –

get their taxol from?

It is of further concern that Hande Yunnan have been slapped by the FDA for multiple objectionable offences in

routine inspections of their facility, and lack of corrective action, as determined by the FDA.

Figure 13 Extract - Chongqing Pharmaceutical Co’s occupational disease hazard assessment report9

Figures 14 & 15 – FDA Assessments of Chongqing facility10 & Classification Guide11

9 webcache.googleusercontent.com/search?q=cache:http://www.cqszfy.com/uploads/soft/180312/1-1P312161642.doc 10 https://www.accessdata.fda.gov/scripts/inspsearch/index.cfm 11 https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/inspections-database-frequently-asked-questions#classification

Viceroy Research Group 9 viceroyresearch.org

2. Factory shutdown

In May 2019, Athenex advised that its Polymed facility in Chongqing was voluntarily suspended:

Figure 16 Athenex 2019 Q2 10-Q

This statement released by Athenex is totally contradictory to its voluntary suspension: why would a resolution

need to be had with the Department of Emergency Management of Chongqing if the suspension was voluntary?

A search of the Chinese Government’s Ministry of Emergency Management conversely showed that required

local province investigators were advised to heavily scrutinize these types of plants upon back-to-back

catastrophic disasters at two unrelated biochemical API factories, resulting in almost 100 deaths and hundreds

of injuries.

Figure 17 – Extract from in-pjarmatechnologist article12

We understand guidelines for investigations were established around April 2019, per the following link which

can be translated directly from the Ministry of Emergency Management:

12 https://www.in-pharmatechnologist.com/Article/2019/06/10/Athenex-suspends-API-production-in-China

Viceroy Research Group 10 viceroyresearch.org

http://120.52.31.79:7040/ezweb/ctrl/news/D1BE086F5A667038644C0C910329AF2D

Specifically, more recent communications from the Ministry of Emergency Management advised that the

crackdown should not only be focused on the safety aspects, but also illegality of operations, following further

accidents and biological plants:

http://120.52.31.79:7040/ezweb/ctrl/news/6EBBB0F1EE61094101EC8322EF96CD25

Most telling, however, is Polymed’s atrocious track record of safety inspections in the past. For instance, a 2017

review of Chongqing Pharmaceutical Co’s occupational disease hazard assessment report by the Chongqing

Occupational Disease Prevention and Treatment Institute concludes that the risk of occupational disease hazards

at the site are classified as “serious”:

Figure 18 Extract - Chongqing Pharmaceutical Co’s occupational disease hazard assessment report13

Reviews by the FDA also reported objectionable conditions/practices were found during inspections, similar to

Hande, who we maintain is a supplier of Polymed:

Figures 19 & 20 – FDA Assessments of Chongqing facility14 & Classification Guide15

Given its track record, we are cynical that Polymed’s voluntary suspension was voluntary

at all, and believe the company will face heavily scrutiny both for its current and past

failures in corporate governance and health and safety.

3. Show me what you got?

13 webcache.googleusercontent.com/search?q=cache:http://www.cqszfy.com/uploads/soft/180312/1-1P312161642.doc 14 https://www.accessdata.fda.gov/scripts/inspsearch/index.cfm 15 https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/inspection-references/inspections-database-frequently-asked-questions#classification

Viceroy Research Group 11 viceroyresearch.org

All else excluded, we have put together a comparison on what Athenex would like you to believe they run, versus

the actual state of operations within Polymed.

Here is Polymed’s website:

http://polymedt.com

As you will see, the company boasts headquarters in Houston, manufacturing plant in China, and offices in Japan.

China

The company’s manufacturing location is listed in Changshou National Chemical Industry Zone, with “communal

facilities”. The depiction of the factory, however, is completely fabricated:

Figure 21 – Extract from Polymed website16

This is hard to spot unless you blow up the image, in which Athenex have blatantly photoshopped their name

to a building, photoshopped a garden and bushes out front, and photoshopped an American flag on a pole

outside. Further, it is laughable that this “communal facility” is entirely “branded” as Polymed Therapeutics.

16 http://polymedt.com/index.php?option=com_content&view=article&id=49&Itemid=61

Viceroy Research Group 12 viceroyresearch.org

Inspecting a bird’s eye view of the surrounding area of the site, nothing appears to resemble the photoshopped

facility:

Figure 22 – Google Maps view of Polymed Japan Site17

Houston

The Houston Headquarters of Polymed, depicted below, are not actually the headquarters of Polymed:

Figure 23 – Extract from Polymed website18

17 http://polymedt.com/index.php?option=com_content&view=article&id=63&Itemid=58 18 http://polymedt.com/index.php?option=com_content&view=article&id=48&Itemid=60

Viceroy Research Group 13 viceroyresearch.org

A simple reverse image search of this location identifies it as 3050 Post Oak Boulevard19, a much, much nicer

office than Polymed’s actual headquarters, 4 miles away, at 6200 Savoy Drive, Houston.

Figure 24 – Google Maps Streetview of Polymed Japan Site20

Japan

In a laughable over exaggeration, Polymed shows depicts the Nagayo Bridge21 over the Tokyo skyline as its frame

for their Japanese “IT Chemical Specialist” site, which allegedly custom manufactures pharmaceutical and

specialty chemicals.

19 https://42floors.com/us/tx/houston/3050-post-oak-blvd 20 http://polymedt.com/index.php?option=com_content&view=article&id=63&Itemid=58 21 https://www.pixtastock.com/photo/37786658

Viceroy Research Group 14 viceroyresearch.org

Figure 25 – Extract from Polymed website22

We sincerely doubt that Polymed can pull this off from its tiny, residential location, which

isn’t even in Tokyo!

Figure 26 – Google Maps Streetview of Polymed Japan Site23

22 http://polymedt.com/index.php?option=com_content&view=article&id=50&Itemid=62 23 http://polymedt.com/index.php?option=com_content&view=article&id=63&Itemid=58

Viceroy Research Group 15 viceroyresearch.org

Viceroy Research Group 16 viceroyresearch.org

4. Fibrocell & Zuo – The man who wasn’t there

It’s a lot easier to say you did something than to actually do it. William Zuo’s Athenex bio says he was the CEO

of the Chinese operation for Fibrocell (NASDAQ:FCSC) from 2010 to 2013 and introduced the LaViv cell therapy

product to the market. This is a mixture of untruths and outright lies.

Figure 27 William Zuo, PhD24

There is no mention of Zuo in any of Fibrocell’s SEC filings for the period except for his sale of shares in the

company’s prospectus25 in which he is not mentioned as an employee. The Asia section is a little stranger.

On November 3, 2010 Fibrocell announced the establishment of a joint venture with Hefei Meifu Bio-Tech

Limited Co. for development and marketing of its products in Asia. This was the first mention of Asia in the

company’s announcements. Coincidentally, Hefei Meifu Bio-Tech manufactures and distributes APIs including

paclitaxel and docetaxel.

Figure 28 Fibrocell Science, Inc. Establishes Joint Venture to Market Its Technology Platform in Asia 26

No website, Chinese name or other identifying information was ever given for Hefei Meifu Bio-Tech. The

company had no other information available on the internet both at the time and now. Hefei Meifu Bio-Tech

appears to disappear except for Fibrocell’s 2014 10-K and 2014 Q1 10-Q where it stated:

24 https://www.athenex.com/dt-team/william-zuo-phd/ 25 http://ir.fibrocellscience.com/static-files/ce148bbc-c987-404e-8373-772cf94c4904 26 https://www.businesswire.com/news/home/20101103005730/en/Fibrocell-Science-Establishes-Joint-Venture-Market-Technology

Viceroy Research Group 17 viceroyresearch.org

“In April 2010, we entered into a letter of intent with Chinese company Heifei Meifu Bio-Tech Limited Co. to

form a joint venture… to date we and Heifei Meifu have not received Chinese governmental approval to form

the proposed joint venture…”27

Figure 29 Fibrocell 2014 10-K

It appears as though Zuo oversaw absolutely nothing at Fibrocell, and we are unsure whether he was ever there

at all. Crediting him with introducing LaViv to the Asian market appears to be an outright lie considering the

company had no Asian operations during that time.

As a side -note Fibrocell shares are now virtually worthless, having been at the center of a stock manipulation

scheme during the time Zuo was “employed”28.

What was Zuo doing from 2010 to 2013?

Are investors aware of the falsehoods in William Zuo’s biography?

27 The misspelling of Hefei Meifu has been copied verbatim from the Fibrocell filings 28 https://www.finra.org/media-center/news-releases/2015/finra-hearing-panel-expels-john-carris-investments-and-bars-ceo-george